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Tuesday, December 03, 1996 Iomega was up $2 5/8 Friday, closing at $25 1/4 (+11.60%). TODAY'S RECAP: IOM shares leapt more than 10% Monday for no apparent reason, leaving Fools in the Iomega folder fishing for explanations. With no news on the wires, speculation was less than satisfactory, and the mood in our forum was one of puzzlement rather than euphoria. Still, up is up, and the longs were happy to greet the windfall. Iomega CEO Kim Edwards made a surprise appearance on yesterday's Nightly Business Report, and a portion of that interview is transcribed in the post by BBu84 (11++, below). America Online members might want to visit NBR's site online at Keyword: NBR, as it is possible they might have a more comprehensive report on the interview there sometime today. INDEX: Use the Search or Find feature of your word processor to locate the article number (Find: 1++, 3++, etc.) -- or use AOL's Edit>>Find in Top Window Feature. If Find in Top Window is dimmed, just click on some text, anything, in the IOM Today window and try again.
1++RB61 wonders about Iomega's Christmas advertising campaign. And now, the Best of the Board...Started 3 am ET 12/2/96.
1++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: Production? Date: 96-12-02 12:36:08 EST From: RB61
SHERRMEYER,
<<I am really concerned that Iomega is going to be in big trouble in about 10 days though as we near Christmas and the sh_t really hits the fan. I fear that they are going to be unable to keep products on the shelves. Thats not going to do anybody any good.
Lets hope that I am wrong,>>
I had the same thoughts this weekend. I looked through the Star Ledger (largest paper in NJ) for all the adds for Zip, Ditto, and Jaz in the Thanksgiving paper. Usually the paper on Thanksgiving is one of the largest issues of the year. Advertisements abound from every conceivable store imaginable. I did see some adds for IOM products, but not nearly as many as I would have thought.
Maybe I'm wrong, but I was kind of expecting a large media attack from IOM during the Thanksgiving weekend. The day after Thanksgiving is traditionally the biggest shopping day of the year. More commonly referred to as Black Friday, this is when the black ink for stores really begin. My thought is that IOM's production still hasn't met demand for the product. While I am not concerned with a bad qtr, I really want IOM to be able to meet the demand that is present for the season.
Any thoughts?
Fool On,
Robert 2++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: advertising Date: 96-12-02 12:49:33 EST From: JMaleck
interesting. a post from robert wanting more advertising in the post-thanksgiving media and an earlier post from tuoneder, who seemed a bit worried about the "diminishing returns" of continued advertising.
this has been discussed earlier this year in previous folders, but to tuoneder: advertising is not just about moving products. it's also about building a brand, top of mind awareness, mindshare, etc. even if iomega was, for the moment, completely sold out of everything it makes, you could make a good case for continuing to advertise--but not, for example, for pouring money into co-op advertising with retailers, which is designed to make the register ring immediately.
robert, I wonder if a lot of io's dollars are going toward that very thing during the holiday buying season. given the "air support" of io ads in previous months, a stepped-up co-op program designed to cash in on the retail level for the holidays would make good sense.
ho ho ho, john m. 3++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re: Production? Date: 96-12-02 12:54:34 EST From: MF DrJimbo
Robert-
Your thoughts echo my own, which I posted over the weekend. DILLGF implied that OEM inclusion has been slowed by lack of product. Over the summer, I had decided that Iomega had plenty of product to meet demand. I was puzzled by the seeming decline in Zip coop advertising.
It must be difficult to forecast demand for a popular item like Zip drives when consumer demand itself remains such an unknown. Its looking like this will be a very good sales season, for which Iomega may not have been fully prepared. By selling what they have at retail they'll maximize margins and earnings.
I presume that the capacity that is now being used to crank out external drives for retail will be turned to making internal drives for OEMs next year. That should provide a base of sales and decrease the seasonality at least a little. 4++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: SyJet outlook Date: 96-12-02 13:08:11 EST From: MonirM
The market has assumed that SyQuest was going out of business. But that's not the case. I've spoken with several people at the firm, and I can assure you, the company has gotten back on track. The management was largely replaced earlier this year, as many of you know, and they have been doing the company a lot of good.
According to people there, the company is finally making money again, based largely on successful EZ-Flyer 230 sales. The EZ-Flyer drive has carved out a niche for itself in the removable storage market. It holds twice as much as the Zip, and is much faster as well, since it is based on hard drive technology. At $299, it's more expensive, but the increased performance over superfloppies has brought it to profitability.
The SyJet 1.5GB, due in January, is an exciting unit, which I personally got the chance to see at Comdex. This time the drive is for real. They had working models on the floor, and they are obviously very high performance units. The drives store 50% more than the Iomega Jaz, and are about 60% faster in benchmark tests. It's also about 50% smaller in overall size compared to the Jaz. In addition, SyQuest has obviously improved its entire marketing approach compared to the EZ-135 days. The SyJet is a very elegant unit which looks similar to the EZ-Flyer, with sleek curves, a sealed, dustproof front hatch, and a small footprint. It is a lot prettier than the Jaz, which looks rather clunky in comparison.
I compared video output from both the Jaz and SyJet at Comdex. The SyJet was clearly superior; they were playing an MPEG version of "Toy Story" straight off the drive, and the SyJet managed 30 frames per second perfectly smoothly without losing any frames. The Jaz drive's output at the Iomega booth was noticeably choppier, dropping about 1-2 frames per second.
The great thing about the SyJet is that it sells for the same price as the Jaz, $399 and $499 SRP for the internal and external unit, respectively. The 1.5GB cartridges will also go for about $99, same as the Jaz 1GB carts.
SyQuest was under serious NASD scrutiny earlier this year, and many people thought that the company was going to be delisted from NASDAQ due to a failure to meet capitalization requirements. But a combination of debt restructuring and a return to positive cash flow allowed the company to pass the requirement by several million dollars. At this point, the company is poised to compete strongly in the high-end removable storage market. I asked several Iomega people at the show if they had any plans to announce a higher capacity Jaz that could compete against SyJet, but they indicated that this was not the case.
I also heard numbers from SyQuest people that the company was anticipating sales in the $300 million range for next year, based on the back orders that they had already received on the SyJet units. At its current market cap of about $50 million, that means the company is trading for about 1/6 1997 sales.
I'm in! I've recently increased my long position in this company by several thousand shares. I realize that there is a still a lot of short interest in this company, but I am confident that this situation will change after the next quarterly report. I assume a lot of the shorts out there have kept their position because they believed that the company would go out of business. As it becomes apparent in the next few weeks that the company's long-term outlook has brightened, we will probably see a fairly rapid upward change in the the stock price as short close out their positions.
Monir 5++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:advertising Date: 96-12-02 13:31:15 EST From: RB61
John M.,
<<robert, I wonder if a lot of io's dollars are going toward that very thing during the holiday buying season. given the "air support" of io ads in previous months, a stepped-up co-op program designed to cash in on the retail level for the holidays would make good sense.>>
I agree. Co-op is kind of a funny animal. Most companies make their retailers *earn* co-op based on sales. In other words, a dealer may have a 3% co-op program. Co-op advertising dollars are credited to the accounts A/R balance based on their sales for a particular period, say six months. Sales generated in October - November are just now having co-op dollars credited to the dealers accounts. Now this isn't to say that the dealers can't spend in anticipation of earning the co-op, just that in order to have the advertising refunded via A/R credits, future sales are not offset against prior advertising. Depending on when IOM's co-op year cutoff takes place (maybe Dec. 31, 1996), if the dealer's unused co-op accrual is not enough to offset submitted advertising claims, the dealer will not be reimbursed.
Now, there are other funds that can be used to augment co-op. One is MDF, or market development funds. This is usually a lump sum amount given to a dealer to help develop the market. SPIFFS or other types of sales contests are also used (a free computer with a internal Zip drive to the leading salesperson).
My point on the advertising is this: Momentum can be put in place that can very well carry over into the 1st qtr of 1997. January sales at retail are very large. All of the people with cash gifts from the holidays as well as people returning goods to buy what they really want, help generate a very decent selling month for January. I want the advertising to be a driving force so that the 4th qtr is not just an aberration. Remember last year when KE talked about a slow down after the 4th qtr due to the consumer nature of the products being sold? Well, the 1st qtr 1997 outperformed the 4th qtr 1996 numbers. Why, IOM did a pretty good job advertising among other things. IOM really needs to establish brand name awareness.
Remember, this is all coming from a pencil pushing, green eyeshade, CPA who hates to spend money on nasty things like advertising :>). But I can tell you this, if done properly, advertising works very well indeed.
Fool On,
Robert
P.S. IOM had around $42m excess in the channel at the end of the 3rd qtr ($11m in reserve divided by gross margin of roughly 26%) If IOM sells through everything this qtr, there won't be any need for a reserve. Therefore, count that $42m as sales this period :>) 6++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:Why Why Why ! Date: 96-12-02 17:38:09 EST From: TokyoMex
Because this stock was undervalued folks. The market sentiments, the numbers the everything that we believed in for all these months are now realising. It was KLAC, then AOL now IOM. Can't you see? It is so simple and logical.The solution, storage solution that is like the day when I bought my lap top. Just had to have it for all my Quicken 5.0 files. Now this is the stepping stone that we have been all waiting to see the 30s very soon. Two points down here and there we took it with a lot with Ga Ga Do Dool Do and spat our slivers on the board left and right. But lets see if the shorts can stomach the gain of two points, since today's gain has tremendous implications in terms of timing, volume and the whole back ground scenario has changed for our beloved IO. (Don't forget VB, Chi, CynicalMex theu all lost money as of late) I did a same exercise last three weeks with KLAC and AOL and even though I sold my KLAC at 38 I knew in my bones that the IO will follow same pattern. It rather came wholesomely and sudden (Ya Ya I know some of you will say Only 2 points and Mex goes crazy) like the water fall that I used to visit near the Lake Cuomo, near Bergamo or as same as on hills of Manoa, by the U of Hawaii, where I used to run up in my bathing suit as sun rose while my room mate played Vivaldi's Quatro Etagione. Go ahead and penalize me for my banality, my energetic mouth, and my ceaseless libido, but I truly believe in my IO and soon there will be a day when I can say hallleluja, the children of Abraham and the children of Mohammed sit and play side by side and can say we are truly free! truly free from this madness. Your not so any more humble burrito maker (with no more profile). 7++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Inventory (re: advertising) Date: 96-12-02 18:56:19 EST From: PKeeler
RB61 (aka MF Robert) wrote: >>> P.S. IOM had around $42m excess in the channel at the end of the 3rd qtr ($11m in reserve divided by gross margin of roughly 26%) If IOM sells through everything this qtr, there won't be any need for a reserve. Therefore, count that $42m as sales this period :>) <<<
Len Purkis quoted a pre-Christmas inventory level of 2 weeks. Is the $42 million you talk about included in this figure? When CFO Purkis talks about inventory of 2 weeks does that mean he had $47 MM (310.1 x 6/13) sitting in a warehouse somewhere?
Several large retailers have been sold out of Jaz drives recently. Iomega Zip drive in store inventory, my sitings, is down from September. CayugaDan and Shig2 report tight inventory on Jaz and Zip at the two largest distributors.
If demand is outstripping supply and inventory in store, and presumably in warehouse, is depleted, can we get a minimum Revenue figure for this quarter by adding the inventory into last quarter's Revenue figure? For example, $310 MM + $42 MM (in channel) + $47 MM (in warehouse) = $400 MM...Assuming Iomega was at maximum capacity last quarter.
Another possibility, besides unexpected demand, for why Iomega's capacity is suddenly overwhelmed is MCI. Iomega is selling the core drive mechanisms to MCI for their Zip drives. I would assume that MCI would buy many of these in advance of actual drive assembly. This could be draining Zip drive capacity.
PKeeler Patrick Keeler 8++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Ticker action Date: 96-12-02 19:24:39 EST From: MRMENSA3
Around 3:30 the IOM ticker got to the point of being unreadable there were so many trades going on. The Bid size at 24 7/8 was 20K and the Ask size at 25 was 99K . I figured IOM would hit 25 and take a slight turndown, but a 100K buy hit at around 3:45 and then the ticker went ballistic. Check out www.lombard.com (it is free but you must register) and call up the IOM intraday graph to see the 100K buy (short cover? :) on the volume chart.
Also, 105 blocks traded today, or above 5-6 times the norm for a regular IOM trading day. The tape was chock-full of 10K+ buys and sells every time I checked. Go to this URL: http://www.stocksmart.com:8801/ows-bin/owa/sd.g?i=3638 to confirm the 105 blocks.
IMO, 25 was probably a stop-loss for some shorts, thus the frenetic ticker action as 25 was attained. That coupled with today being the first day of trading after the funds' year-end tax loss selling deadline of 10/31/96 made for an exciting day.
Not to mention, and I will since no one has responded to my previous post, the fact that Office Depot is selling Zip drives for $125, less the $50 rebate, or $75. The store in Rock Hill, SC is anyway :)! Can anyone match this price out there in channel-check land?
Jeff 9++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:NBR Date: 96-12-02 20:10:44 EST From: MacBare
Mr. Edward's appearance on NBR tonight was a pleasant surprise. I stumbled on it by accident.
He shared nothing new, just the company line on virtually every question. It's a very short answer format. Perhaps the most impressive note was the comparison of nine months' revenues, year over year, and of profits--from a loss to a profit of $38 million so far this year. That may well get the attention of some average viewers.
What was pleasant was the extremely respectful tone of the interviewer. His attitude was "Iomega is the defacto standard-in-waiting" for the 1.44 meg. Quite different from the "hyped up stock" attitude so often seen in various outlets over the last year.
MacBare 10++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: Re:200 MEG ZIP Date: 96-12-02 23:43:15 EST From: JohnKess
>>Its true, the floppy is dead. I converse with major distributors/aggregators in the computer industry daily. IO will be releasing a 200 meg zip sometime in the first quarter, if not sooner. This Zip 200 will answer competitive threats from syquest, etc. Remember though, our mission is to replace the floppy. ...<<
True, IOM's stated goal is to establish the Zip as the standard that replaces the current floppy, but in doing this the Zip 2 is irrelevant, at best, and quite likely would be an obstacle.
Compare the evolution of the floppy capacity with that of the hard drive in recent years. Hard drive capacity in typical PC configurations has increased steadily and incrementally: 10, then 20, then 40megs and so forth so that now we have moved into the gigs. On the other hand, as the capacity of hard drives has moved forward the capacity of the floppy has been 1.44meg....1.44meg...1.44meg.... The lack of increase in the floppy versus the growth in the HD is primarily attributable to one characteristic -- the 1.44meg, 3.5inch floppy diskette is the *standard* for the user, while no comparable "standards" issues impeded HD development. It is really a legacy issue -- all those disks out there.
A "standard" is not the latest and greatest, at least not for long. It is what is widely used and accepted. Establishing a standard in a floppy replacement is basically a numbers game. Get drives in systems in large numbers. A large installed base begets a larger installed base. And this momentum also precludes reestablishing the standard frequently.
Compatibility and price are the primary issues at this point. IOM will now beat the competition because rival drives aren't compatible with the emerging standard -- the Zip. Not because the Zip is the fastest or highest capacity. (It would take a price-performance leap shake this scenario IMO).
Iomega won't release a higher capacity Zip until the standard is nailed down IMO. Why jeopardize the emerging standard with a new drive that is not fully compatible? Actually, I believe we are more likely to see 25meg Zip disks before we see 200+meg disks.
> Kim is smart, he is milking this cow for as long as possible at various price points on its way down to becoming the standard. <<
The profit is in the disks. The milk is just beginning to flow. 11++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subj: vcr transcript Date: 96-12-03 00:16:09 EST From: BBu84
I happened to switch to channel 9 here in Seattle and lo and behold they had an interview with Kim Edwards so I taped it, some of it.
<<....Nasdaq or NY stock exchange we certainly had hoped to reduce some of the volatility, recently it has gone down to some degree and we recognize that we can still maintain the liquidity as go forward
And that volatility, of course, is due to the tremendous competition in the market you are in. You are the primary, uh, one of the primary developers of computer storage devices. Why don't you tell me just a little about your products?
Well, the truth is is we're the only real supplier out there with read-writable storage that is affordable for the consumers, starting really with the Zip drive that we introduced initially at $199.00. Today it is $149.00 and what it allows you to do, as a user, is take computer information to and from work, back to your home, trade it with your friends, and very economically. Disks today are down to fifteen dollars and as I mentioned at the moment you can buy them at Christmas for $149.95.
How difficult is it for a company...creates, really, a market niche, to deal with the competition when some of the big players come in and try to enter it as well?
Well, at the moment we don't know the answer to the question because no one's really come after us, and by the way, for the first nine months of this year we've hit 816 million, up from 177 the first nine months of a year ago and 141 for the total year prior to that. So, at the moment, we're still, uh, we believe out in front of all the competition in this category.
You've also got some, uh, some big contracts with OEMS to build your equipment into the computers they're selling. How important are those? Tell me about some of those...
Extremely important. If you are going to make it a standard, particularly the Zip drive, you must get inside the PCs themselves. At the moment we have major corporations like IBM, HP and Packard Bell offering Zip right inside of their PCs.
There was some question at one point because I know some of the other systems-and you're right, they don't compete, at that capacity level-but, uh, would also accept the traditional 3.5 inch drives. Yours does not. Have you seen anything in the market like that indicates there's some problem for you with that?
Well, there are other technologies out there that they're really not made any uh, stronghold and primarily because of the pricing that they're active at. Uh, by the way, at one point in time we were developing a floppy-compatible drive, and felt the added cost was too expensive to take it forward. And our rational was simple: the floppy today is obsolete.
And we talked a little bit about the company's stock price. And of course that's not directly under your control, but how about some of the earnings flows-do you consider the pattern healthy?
Yeah, through the first nine months we made 37 million this year versus a loss of just under 2 a year ago so we are quite pleased with our progress at this point
And the industry estimates you think pretty much on target looking forward?
We really don't talk about forward estimates as a corporate policy.
Thank you. Kim Edwards, the CEO of Iomega.
End Report. Posts covered through 3 am ET 12/3/96. _______________________________
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